Office of the Attorney General
State of Texas

Re: Whether a county judge may simultaneously serve as a
member of the board of directors of a corporation which does
business with the county, and related questions (RQ-1506)

Dear Mr. Driscoll:

You ask the following questions regarding possible conflicts of
interest of a county judge:

May a county judge [of Harris County] serve simultaneously as
county judge and as a member of the Board of Directors of a
private corporation which contracts or does business with Harris
County, the Harris County Flood Control District and/or the
Harris County Hospital District?

Whether the county judge should file an affidavit of
substantial interest regarding agenda items relating to his
wife's employer the City of Houston?

In answer to your first question, it is our opinion that the
activity you describe creates a conflict of interest contrary to
public policy. Inasmuch as we have been informed by letter dated
September 28, 1988, from the county judge that effective
September 15, 1988, his wife has left her employment with the
city, we find it unnecessary to address your second question.

You state that the current county judge in Harris County was
first elected to that position in 1975. In 1988 he was elected
to the board of directors of Houston Industries, Inc. (HII), and
consequently also serves on the board of directors of Houston
Lighting and Power (HL&P), a wholly owned subsidiary of HII. In
addition to HL&P, HII is also the parent company of Utility
Fuels, Inc. (coal supplier), Primary Fuels (oil and gas
exploration), Innovative Controls, Inc. (outside lighting
manufacturer), KBL Communications, Inc. (cable television
supplier), and Houston Industries Finance, Inc. (purchaser of
HL&P delinquent bills).

Since his election to the board of directors, the judge has
sold his stock in the company and has filed many 'affidavits of
substantial interest' disclosing his position with the companies.
In his capacity as county judge, he has recused himself on many
votes taken at county commissioners court meetings relating to
business between the county and the companies. The judge has
also filed a letter with the corporation waiving 'any and all
present or future compensation,' including expense reimbursement
during the time he serves both on the corporation boards and as a
county judge.

As detailed in your brief, there are frequent interactions
between HL&P and the county. You state, 'HL&P constructs, uses
and maintains its lines and facilities on, over, and across
virtually every Harris County road right-of- way.' We need not
recount the many types of interactions between the county and the
company, but they include the county's payment of bills for
electrical service; the acquisition of easements by both parties;
the construction, relocation, repair, and maintenance of both
roads and power lines; and the county's use of HL&P's light poles
for traffic signals.

In addition to his position on the HL&P board of directors, the
county judge sits on the board of directors of a nonprofit
corporation established to treat indigent and paying AIDS
patients in the county. The county judge has informed us by
letter, dated September 28, 1988, that he will not receive any
compensation for his services on the board of directors of the
nonprofit corporation. In that same letter, the county judge
poses the possibility that the county may contract with the
nonprofit corporation, while you anticipate that the hospital
district may contract with the corporation for the care of
indigent AIDS patients in the county. We will respond to both
possibilities.

Public policy has long prohibited public officers from holding
other positions, executing contracts, or engaging in private
activities that conflict with their public duties. That policy
has been engrafted in the Texas Constitution and statutes. See,
e.g., Tex. Const. art. III, ss 18, 22; V.T.C.S. art. 6252-9b;
Local Gov't Code, ch. 171, s 81.002.

The leading Texas case in this area of law is Meyers v. Walker,
276 S.W. 305 (Tex. Civ. App.--Eastland 1925, no writ). Although
that case involved city officials who had a pecuniary interest in
a contract, the court's restatement of the public policy behind
such prohibitions is instructive to our current inquiry. The
court said:

These safeguards in letting contracts were not provided with
the thought that the public official was corrupt, but that, in
the expenditure of public money, the strictest requirement should
be followed. Our law-makers were wise in trying, not only to
remove temptation, but to place the public official even above
the suspicion of wrongdoing. The idea of keeping the public in
the confidence of the official would bring co-operation and
loyalty in the administration of government and enforcement of
law, and these principles underlie the security of our
government.

Meyers v. Walker, supra, at 307.

That case was grounded in the common law prohibition on public
officers' conflict of interest. However, in 1983 the legislature
adopted a mechanism whereby a local public officer could hold an
interest in a business entity, declare that interest, and recuse
himself on matters concerning that business entity; thus allowing
the remainder of the governing body to vote on and conduct
business with that entity. Loc. Gov't Code, ch. 171. It has
been suggested that chapter 171 allows the county judge to sit on
the board of directors and recuse himself on county matters
pertaining to the corporation. However, that chapter applies only
when a local public official has a 'substantial interest' in a
business entity or real property, and 'substantial interest' is
defined in exclusively financial and familial terms. Loc. Gov't
Code s 171.002. The fact that the county judge has waived all
compensation for his services to the corporation removes him from
the purview of chapter 171.

Section 81.002 of the Local Government Code requires that prior
to undertaking the duties of office, county judges and county
commissioners take an oath that they will not be directly or
indirectly interested in any contract with or claim against the
county, except as expressly authorized by law. It was that oath
that provided the basis for the holding in another case where a
county officer had no apparent interest in a questioned contract.
Bexar County v. Wentworth, 378 S.W.2d 126 (Tex. Civ. App.--San
Antonio 1964, writ ref'd n.r.e.), involved a county commissioner
who had contracted with a voting machine company to be its sole
representative and salesman in the state except in his own county
and would receive a commission on every machine sold in the
state, except those sold to his own county. A taxpayer in the
county brought suit to enjoin the sale of that company's voting
machines to the county. The court said that the record was
undisputed that the commissioner would receive no money from the
sale of the machines to his county. In affirming the trial
court's grant of the injunction, the court said:

[The commissioner] is obligated to give his best efforts to
the carrying out of his appointment, and to render such services
in connection therewith as may be reasonable and necessary.

. . ..

Under all of the circumstances, it is presumed that Ploch was
not in a position to give to Bexar County his undivided loyalty
and support in seeing to it that Bexar County got the very best
deal possible in the purchase of 100 new voting machines, when he
was at the same time obligated to use his best efforts to promote
and exploit the sale of Shoup voting machines throughout the
State, except in Bexar County. The fact that he was not to
receive any money from such a sale in Bexar County would not
prevent him from having an indirect interest in promoting and
exploiting Shoup voting machines elsewhere in the State by a sale
in Bexar County.

Bexar County v. Wentworth, supra, at 129.

In that case, as in this inquiry, the ultimate interest of the
county officer is unknown, and, superficially, his actions appear
to be within the letter of the law. The county judge in the
current instance is a director of a corporation and as such has a
considerably larger interest in the private company than had the
voting machine salesman. It is well established in Texas law
that an individual who sits on the board of directors of a
corporation owes to that corporation the exacting duty of a
fiduciary. E.g., State Banking Bd. v. Valley Nat'l Bank, 604
S.W.2d 415 (Tex. Civ. App.--Austin 1980, writ ref'd n.r.e.);
Canion v. Texas Cycle Supply, Inc., 537 S.W.2d 510 (Tex. Civ.
App.-- Austin 1976, writ ref'd n.r.e.); Trinity-Universal
Insurance Co. v. Maxwell, 101 S.W.2d 606 (Tex. Civ. App.--Austin
1937, writ dism'd).

We believe the logic of the court in the Bexar County case
extends to the question before us. The county judge of Harris
County is not in a position to give to Harris County his
undivided loyalty and support, when he is at the same time
obligated to exercise the care of a fiduciary on behalf of the
corporation. We conclude that public policy prohibits a county
judge from sitting on the board of directors of a corporation
that does business with that county.

In all cases the principal is entitled to the best effort and
unbiased judgment of his agent, and the law, for reasons founded
in public policy, forbids the agent's assumption of a relation
which affords temptations antagonistic to his duty.

Scott v. Kelso, supra, at 611.

In Attorney General Opinion O-2929 (1942), this office relied
on the quoted language to find that state employees had
effectively resigned their public employment when they took
positions in the private sector that were in direct competition
with their public employment. Again in Attorney General Opinion
H- 1309 (1978), this office said 'public policy severely limits
the ability of a public entity to contract with a private entity
when the same persons serve in management positions on both.
Thus, while one person technically may serve in both capacities,
the conflicts of interest thereby raised will often prevent him
from acting in both capacities as a practical matter.' Id. at 2.

The same public policy applies to business dealings between the
Harris County Flood Control District and HL&P or HII, and our
conclusion is the same. The Harris County Flood Control District
was created under Acts 1937 of the 45th Legislature, chapter 360,
at 714. Section 1 of that act establishes the district as 'a
governmental agency and body politic and corporate' and
designates the commissioners court of Harris County as the
governing body of the district. The county judge is still
subjected to the same divided loyalty whether he is sitting as a
member of the commissioners court or on the governing body of the
flood control district.

We reach the same conclusion in regard to contracts or other
business dealings between the county and the nonprofit
corporation established to treat AIDS patients. The fact that
the corporation was established not for profit does not affect
the public policy considerations: the county judge has a
fiduciary duty to the corporation, and there is no less
opportunity for his public duty to conflict with his private
interest. See, e.g., Attorney General Opinions JM-884 (1988); H-1309 (1978); M-714 (1970). In fact, we can hypothesize that his
conflict may be greater in the case of a corporation in whose
beneficial goals the public official strongly believes.

The same considerations do not apply, however, to contracts
between the AIDS corporation and the Hospital District.

The Harris County Hospital District was established pursuant to
article 4494n, V.T.C.S. The commissioners court appoints the
board of managers of the district. V.T.C.S. art. 4494n, s 5B.
The commissioners court must also approve the district's budget,
id. s 8, and all contracts of the district. Id. s 5b. The
commissioners court may prescribe purchasing the accounting
practices of the district. Id. s 6.

Although, under the statute, the county commissioners court
retains some responsibilities in regard to the hospital district,
the district is a separate political subdivision of the state.
Bexar County Hosp. Dist. v. Crosby, 327 S.W.2d 445 (Tex. 1959);
Attorney General Opinion WW-886 (1960).

The commissioners court does not act as the governing body of
the hospital district, which, under the facts presented, may have
a continuing contractual relationship with the nonprofit
corporation. We believe that a court would not, as a matter of
law, find that a business transaction between the hospital
district and the nonprofit corporation is invalid simply because
of the county judge's interest in the corporation. However, we
also believe that should such a contract be questioned in a court
of law, the court would examine it with the strict scrutiny to
which transactions between corporations with interlocking
directorships are subjected. See United Towing Co. v. Phillips,
242 F.2d 627 (5th Cir.), cert. denied, 78 S.Ct. 93 (1957); State
Banking Bd. v. Valley Nat'l Bank, 604 S.W.2d 415 (Tex. Civ. App.--Austin 1980, writ ref'd n.r.e.).

SUMMARY

Public policy prohibits a county judge from simultaneously
serving on the board of directors of a corporation that does
business with the county, even where the county judge receives no
compensation from the corporation. A county hospital district
may contract or do business with a corporation on whose board of
directors a county judge serves.